Gold holding steady but ETF holdings decline

Traders are positive we could see another move toward $1000 in the medium term.

By IBT Staff Reporter On 07/23/09 AT 2:17 PM

TOKYO (Reuters) -

Gold steadied above $950 per ounce on Thursday as the dollar stayed near a seven-week low against a basket of currencies marked the previous day, maintaining bullion's allure as an alternative asset.

Earlier this month economic worries encouraged investors to buy the dollar and U.S. Treasuries instead of gold, dragging the precious metal's prices down toward $900.

Now with signs of economic stability, market players' appetite for other assets including gold and equities is returning, traders said.

Investors have a feeling that equity markets are on course for a recovery from recent lows... They are less risk-averse than before, said Dick Poon, manager of precious metals at Heraeus Ltd in Hong Kong.

Now that they are buying stocks again, their focus is back on commodities markets as well, he said.

Spot gold was at $952.50 an ounce at 11:22 p.m. EDT, up 0.2% from the notional New York close of $950.40 on Wednesday.

U.S. gold futures for August delivery edged down to $952.70 an ounce, down 0.1% from the previous settlement. On Wednesday, the contract rose $6.40 to settle at $953.30 an ounce on the COMEX division of the New York Mercantile Exchange.

Bullion hit a five-week high of $954.90 on Monday as a declining greenback and better U.S. corporate earnings boosted bullion's appeal as an inflation hedge.

Its gains were also limited by selling to diversify assets from investors who had bought the precious metal at bargain prices.

Such selling has partly been behind the recent fall in holdings by the world's largest gold-backed exchange-traded fund, the SPDR Gold Trust, traders said.

The SPDR Gold Trust said holdings dropped by 5.8 metric tons or 0.5% to 1,086.61 metric tons on Wednesday.

Holdings have declined 47.42 metric tons, or 4.2%, since they hit a record of 1,134.03 metric tons on June 1.

But traders said gold had the potential to rise toward $1,000 in the mid-term because liquidity remains in financial markets.

Buying of the precious metal by investors as an inflation hedge helped push bullion toward $1,000 in June after central banks and governments around the world pumped massive liquidity into financial markets to battle the worst economic crisis in decades.

When looking at nonferrous metals markets, where money has been moving from one metal to another and now into copper, we understand that the markets are basically led by trend followers, said Naomi Suzuki, a senior analyst at SC Asset Management Co.

Such short-term money could easily drive up the gold market although ETFs and physical buyers are largely absent, she said, adding that chart-based buying may pick up pace if gold clears above resistance on its Ichimoku Kinko Hyo chart of $945-$955.